On May 8th, the Subcommittee on Oversight of the Committee on Ways and Means held a hearing on the International Revenue Service’s Colleges and Universities Compliance Project Final Report.  Released on April 25th of this year, the report was based on an audit of 34 colleges and universities identified as at-risk for noncompliance, based on a prior survey of a larger sample size.

Compliance Rates Assessed Include:

  • unrelated business income tax (UBIT),
  • executive compensation, and
  • employment tax issues.

The findings revealed significant noncompliance and underreporting of unrelated business income tax (UBIT) by over 90% of the audited schools, with income adjustments of $90 million and loss disallowances of over $170 million.  In addition, the IRS found many colleges and universities setting compensation in the upper bounds of what is permissible, and all of its employment tax examinations required adjustments.

According to Congressman Charles W. Boustany, Jr., Chairman of the Subcommittee, “Given the importance of nonprofit colleges and universities, it is critical that the Subcommittee continue its review of this segment of the tax-exempt sector.  The IRS’s colleges and universities compliance project suggests widespread noncompliance.  The Subcommittee has an obligation to explore the root of these alarming findings on the audit of our nation’s higher education providers.  This hearing is an excellent opportunity to discuss the results of the compliance project and examine areas for improvement in oversight, with an eye toward comprehensive tax reform.”

With the findings of the completed report, the Subcommittee will look towards reforming the current tax laws in place.  Furthermore, those non-exempt institutions affected will have to be increasingly steadfast regarding their tax and accounting practices moving forward.